No word on OMOs, but analysts don’t foresee a problem.
The Union government today said it would borrow Rs 287,000 crore during the first half of the next financial year. The aim is to complete 63 per cent of its year’s targeted borrowing by September.
“This year (2009-10), in the first half, 73 per cent of the total borrowing was completed. So, in the first half of the next financial year, it is slightly on the lower side,” Finance Secretary Ashok Chawla told reporters after finalising the borrowing calendar with senior Reserve Bank of India (RBI) officials. He added the programme would be done in a non-disruptive manner.
“The government plans to borrow according to redemption needs. It will borrow more in the months when redemptions are high,” said RBI Deputy Governor Shyamala Gopinath. Bonds worth Rs 100,000 crore are due to mature in the first six months of 2010-11.
The Centre’s gross borrowings are budgeted at Rs 457,143 crore during the next financial year, marginally higher than the Rs 451,000 crore it mopped up this year. Net of repayments, the government’s borrowings are budgeted at Rs 345,010 crore as against Rs 398,411 crore this year.
Between April and October 3, 2009, the government borrowed Rs 323,000 crore, with de-sequestering of bonds worth Rs 28,000 crore held under the market stabilisation scheme (MSS). Net borrowings were Rs 289,911 crore during this period.
In the evening, RBI issued a statement that the Centre would borrow between Rs 11,000 crore and Rs 15,000 crore every week by issuing dated securities. Borrowings of Rs 49,000 crore are planned in April, followed by up to Rs 65,000 crore in May.
Most of the proposed borrowing is through bonds with tenures of up to 20 years. “The borrowing programme is very much in line with market expectations. There is a marginal reduction in long bond issues. So, there is less duration coming into the market, but the amount of reduction is not very significant,” said Arvind Sampath, head of bond trading at Standard Chartered Bank.
In recent years, the government has been front-loading (borrowing more in the first few months) its borrowing programme and leaving a smaller chunk for the second half of the year. The idea is to leave more room for private-sector fund-raising and state government borrowings, which generally happen in the second half of the financial year.
“Based on inflows and outflows and the trends in the economy, and the fact that corporates and institutions will have better access to external commercial borrowing, etc, we have kept the first-half borrowings at Rs 287,000 crore,” said Chawla.
The government and RBI, however, remained silent on open market operations (OMOs), which involve purchase and sale of securities from the market.
“The markets have taken the borrowing calendar in their stride. RBI and the government have been silent on open market operations. Perhaps, RBI wants to carry the borrowing plan in as normal a condition as possible,” said IDBI Gilts Managing Director and CEO GA Tadas.
“There is no issue of demand and supply mismatch, as there will be demand from banks and non-banks,” said J Moses Harding, head of global markets at IndusInd Bank.
With deposit growth of 18-20 per cent, he said, banks would need to buy bonds worth around Rs 250,000 crore next year to meet their reserve requirements, while non-banks would need another Rs 100,000 crore.
Bond prices rallied today, with the yield on the benchmark 6.35 per cent government security maturing in 2020 closing 10-basis points lower, at 7.75 per cent.
A section of the market, however, believes that yields have softened as the market believes that liquidity will stay more than comfortable due to foreign exchange inflows. “Yields (on 10-year paper) will be capped around 8.15-8.25 per cent even after 100-150 basis points increase in rates,” said Harding.
